Commentary: Time for non-US companies to join the shale gas party by partnering downstream

05 April 2013 11:28  [Source: ICB]

With the US shale gas party having upstream producers celebrating their feedstock advantage, non-US players can join in by partnering downstream. Look for more of these deals coming up


 Raise a toast to partnership

Copyright: RexFeatures

Some chemical companies may feel like they are on the outside looking into the US shale gas party where upstream producers are popping the champagne corks and toasting cheap feedstocks for years to come. But there is a major opportunity for non-US firms to take advantage of cheap shale gas feedstocks - through downstream partnerships.

This is likely to be the next big trend in global petrochemicals. It is likely there will be more of these US-foreign link-ups downstream, and potentially upstream in the US as well.

There are already plans to build seven new world-scale crackers in the US. That combined with expansions of existing facilities could add over 10m tonnes/year or 37% to existing US ethylene capacity, providing plenty of feedstock to make intermediates and polymers.

Japan-based Idemitsu and Mitsui have already signed an ethylene offtake agreement with US-based Dow Chemical as Dow builds its 1.5m tonne/year cracker in Freeport, Texas by 2017.

Idemitsu and Mitsui will build a linear alpha olefins (LAO) plant and take ethylene from Dow's new cracker. Dow will in turn buy some of the LAO for use in its performance plastics business.

Dow itself will build polyethylene (PE), ethylene propylene diene monomer (EPDM) and elastomers plants downstream.

And MEGlobal, a 50:50 joint venture between Dow and Kuwait's Petrochemical Industries Company (PIC), is looking to build a new integrated ethylene oxide/ethylene glycol (EO/EG) facility in the US, ICIS learned at the International Petrochemical Conference (IPC) hosted by the American Fuel & Petrochemical Manufacturers (AFPM) in San Antonio, Texas.

"Following Dow's announcement about building a new ethane cracker in Freeport, Texas, MEGlobal is seeking board approval to build an EO/EG facility," said Frank Hanraets, executive vice president, commercial and supply chain at MEGlobal on the sidelines of the IPC.

Dow is quickly filling out its downstream plans. But most other companies building new crackers have yet to fully define theirs. Herein lies the opportunity for foreign and domestic players to partner up to build downstream facilities.

The list of companies building crackers and expanding existing plants in the US are predominantly US- based or those with major operations in the US.

But scanning the list of companies that have said they are considering the construction of crackers in the US, you can see that most reside outside the US. They include South Korea's Hanwha Chemical, Thailand's Indorama Ventures and PTT Chemical, Saudi Arabia's SABIC and Brazil's Braskem.

SABIC is actually still exploring a new cracker project in the US with a partner, sources said at the IPC.

But there is more than one way to skin a shale cat. Instead of building a new cracker, joining the burgeoning multi-billion dollar project slate, why not take a less capital intensive route and partner downstream for higher value added products instead?

Additional reporting by Feliza Mirasol in San Antonio, Texas

By: Joseph Chang
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